Yen holds value against dollar despite curbs
August 31, 2010
YOKOSUKA NAVAL BASE, Japan — The Japanese yen maintained its 15-year high against the dollar Tuesday, despite Japan’s action the day before to weaken its currency.
The yen traded at 84.21 to the dollar late Tuesday afternoon, strengthening fractionally despite Prime Minister Naoto Kan’s announcement Monday that the government and the Bank of Japan were taking steps to weaken the yen.
The continuing high yen means a continuing pinch on U.S. government expenses to house and pay allowances for employees living in Japan.
Just a few months ago, a dollar bought 91.79 yen at commercial rates. A U.S. military family paying 200,000 yen ($2,364) per month for rent and utilities is now paying about $180 more than it did in June.
The military pays servicemembers a cost-of-living adjustment to make up for currency fluctuations. But decisions on whether to change COLA is normally made every two weeks, which can impact servicemembers who make big off-base purchases in the interim.
Also, consumers generally receive between one and three yen less per dollar at military and off-base banks, further increasing the effect of the exchange rate on them.
Kan on Monday announced a stimulus package of 920 billion yen ($10.9 billion), which the government hopes will boost the lagging economy while combating price deflation, which in turn contributes to the yen’s excessive strength.
A statement from his office added that a slower-than-expected recovery in overseas markets was adding to Japan’s woes.
Japan’s export-driven economy depends heavily on overseas consumers. The yen’s strength against the dollar has made those exports more expensive for U.S. shoppers, thus slowing demand.
Meanwhile, the Bank of Japan announced it would make more money for lending available to banks in a bid to increase the domestic money supply. Interest rates remained at near zero to encourage lending.